Good morning. We wouldn't be a Swiss company not starting before time. But thank you for all being back after the coffee break. And I really hope that you had an interesting, insightful and enjoyable one and a half days with us here in Switzerland and that we could share with you some important aspects of our Nutrition Health and Wellness agenda. Also with the nutrition Nestle Nutrition journey that Luis Contreras shared with you.
It is indeed if you see our road map and we have been sharing with you the road map in many, many occasions already. But if you see the road map actually, the whole road map is centered around the nutrition wellness agenda. And what does it mean? Because these words nutrition, health and wellness what do they mean? And at the end, it is too We are a company about offering tasty and healthier food and beverage choices to consumers and encourage them to have balanced and healthier lifestyles.
And ultimately by doing so helping them to care for themselves and for their families. That is what we're all about. And I cannot stress enough the importance of that line in the sense that the whole organization is focused and centered around this. But on the other side too it is indeed we are Nestle we are all about quality of life and nutrition. But the relevance of that is the value that it creates.
First of all it defines of what we are. It defines our DNA from the start. It defines what we live for as a company. But it drives also differentiation of building more arguments being ahead of the curve, driving our R and D and at the end creating our brand value that is what drives then also the business value. It also addresses the nutritional needs be it personal or from society that is increasingly visible in our society and after paying for and also challenged towards the company.
And this how we link us in other words how we link as a company with nutrition that drives profitable and through profitable growth shareholder value. The value of that agenda cannot be stressed enough. And that is something that we make permanently explicit that we embrace also much more forcefully in the whole organization in our R and D definition where we're going put our resources behind. And we find that agenda of nutrition and fundamentals in the normal food and beverages that we have. We find it back also in the nutrition that we have for people with specific needs and we have been sharing some of that and I'm going to go back to this in a few moments.
We also have that reflected in the Nestle Health Science initiative, where we definitely believe there is some great value in that potential in that market opportunity or market opportunity that is in the making. Louis Cantrell has shared with you this journey, a journey that started 150 years almost ago, but that we intensified and have made more specific by establishing Nestle Nutrition and how that has evolved and how thereof came certain decisions that are very meaningful for the future. We are also having shared with you this in order to have a healthy and fulfilling life, it all starts with birth and even before that. And how then also Heiko Schipper has shared with you this 1st 1000 days and how we are embracing this. And at the end of the day, it is for a company going back to its roots.
We started with infant cereals and we have been close to infants and babies ever since. And how we embrace this in a holistic way and how we also are engaging and deepening our presence in the world through also the very meaningful wide acquisitions where our friend, Roussomano, has shared with you where we stand, what it means, what intrinsic values are and the drivers of the success of that company. And then also with the example of the huge potential in the world showing through the presentations of John Chang and James Chu and on Nestle Nutrition in China, China, which is an example of how the potential how big the potential is in many, many other markets where we were not so engaged only a few years ago. Africa's of this world and the India's of this world. The potential is huge.
Then the other part that you saw with Thierry Filardo is that's the 1st 1,000 days and we're going to embrace this. There's a lot of potential there and how we're going to organize this through infant formulas, infant cereals and baby food. Yet at the same time in the society, in the aging society, there's huge opportunity for adult and healthy aging nutrition, if you want. There's linked with this good lifers that he calls it. So a huge potential that is on specific aspects of the nutritional awareness that we have focused on the last days.
Then Luis Cantrell has shared you with you the Nestle Health Science journey. It's now 2 years that we have started this initiative that came out of health care nutrition that we had in Neste Nutrition. We have put that at arm length. I have shared that with you why. And basically the reason why we have done that with a specific governance is that the focus we have in food and beverages to drive our nutritional agenda is very sharp.
The alignment we have with the whole organization is very, very strong. That creates so much gravity of focus and alignment that whatever you want to explore that is little bit further out in time has no chance of really flying. That's why we have set up that organization and he reflected the effect and the consequences of putting that with a specific governance. We have quite a few new people coming in there. Here, share by you, we have 120 plus people now in that organization and more than half of them are from the outside.
Why? Because this is another ballgame. This is another platform. It drives and it is under the same roof of wellness, but it goes further. And also the science is different.
And the new science that allows us to go after that opportunity is different. And that's why we have set up Nestle Health Science. So he I hope shared with you the journey of building, defining and driving this initiative. And also I have shown with you the battles we have picked because that's a world when you battles and we have defined there basically 3 existing platforms and three new ones that are going to be driven by the Nestle Health Science Institute. Now as I said that was the first day Nestle is all about quality of life.
And what more important in quality of life or food safety. And that's an issue that through the world today and John O'Brien has shared that with you. In the world of today food safety and quality is of paramount importance. It is it has been always important, but it is now so much visible and present in people's minds also in societies and regulators etcetera. And that is something that we haven't embraced always because we always told you that the biggest or the most important I mentioned that we have to care for is trust.
And trust starts with delivering on your promise and promise that promise is quality and safe food. That is something we have been managing quite intensively. We have been more explicitly building capabilities there. The world has changed. The supply chains are more complex.
We are operating in all parts of the world. So we have built in and strengthened our safeguards there call it safe by design and safe by control that combination. We have also a very, very strong early warning system that is very important in a globalized interconnected world as today. And we are measuring our compliance to these rules and we are measuring our performance. And he spoke about more than 100,000,000 of tests that we do year over.
So that is quality of life. It's linked with food safety. Quality of life is also linked with what we do with our environment. And that was a little bit of walk through that we wanted to share with you here on this floor. Sustainability is not an add on for us and you may have heard that before, but it is really embedded in how we do business.
It is so closely linked with our creative shared value that we as a company whatever we do we have to have respect. Respect if you want to think about one word that is on the base of all our principles and values is respect. It's respect for other people, respect for other cultures, respect for the future. Respect for the future equals environmental sensibility and priority. So I hope we could also share a little bit with you how that is intimately linked with how we do business be it in the supply chain be it in our factories be it also how we connect with society through efficient supply chains etcetera.
So I think these are this was the meaning of setting up that program. First of all, they're showing some aspects very important aspects of our nutritional and wellness that underlines again the importance of that agenda and what we are as a company, what drives us, where we put our resources behind, but also what creates our value and at the end shareholder value and then also the respect we have for the nature and environment and also for food safety and quality. Now if we want to be successful and that brings me to perform over time. And therefore, you have to have as an organization with the complexity we have as an organization you have to have a very clear strategy. And that is again I'm talking about the road map.
I can only stress again the importance of the road map that we have now for 5, 6 years, 5 years, how that has helped us to steer through these troubled times because at the end of the day, it's more or less exactly 5 years that some trouble started in our energy society and our world. But it is that clear view on what we want to stand for, what the reason and strategic direction of this company is and having that set up in the one page that aligns aligns the whole organization. It has given us purpose and has shown us always where the journey really leads us to. I spoke then afterwards also in this company of the need for acceleration. The need for acceleration in the sense of we are a company that goes with a certain pace.
We secure our steps. We don't do stupid things. In that sense, we have quite a few switch qualities that in the world today we have to accelerate. We have to put faster execution behind our strategic direction. And that is what we call then this whole sense of urgency.
And then it is not a matter of only going faster or faster, it is going faster. And then we spoke very explicitly internally about this competitive intensity and winning. It is not just doing good and being best in class in Nestle, it is best in class in the industry and to do that in every part of the value chain. That urgency we have been building that in our organization faster decision making etcetera also fast moving to market of good and new ideas. That was a little bit the keywords that we have used the last years.
And then we spoke about this new reality too. And we spoke about winning in the new reality. And the new reality you know all the characteristics of the new reality. Actually what the crisis did was many, many underlying trends of the emerging markets floating and coming up faster, the crisis in the developed markets and all what came with that, the price sensitivity, aging population, the demographics that changes with that. All this, we are really living in a new reality.
And we spoke about facts in that new reality with that roadmap that we challenge every year. We always check our roadmap if it still stands, but it stands. We need to have some priorities specifically linked with the new reality. And one of these the first one was and I have shared that with you was making grasping opportunities. And all these turbulence of problems and challenges we see, I always believe there's an amazing amount of opportunities.
We are actually privileged to live in these times, because it's full of opportunities. Just think about what science allows us now to do. How we can create products and build nutritional arguments through new insights of science. There is an amazing amount of opportunities in the developing world that are really developing now on their own terms full of opportunities. It's a matter of seeing them and then organizing around them and getting after them.
The second was, The second was, grasping the opportunities. The third was valuing what the consumer values. It should be consumer centric. That means also taking out what he doesn't, which is reducing waste in the system. And there you start seeing then this whole Nestle Continuous Excellence coming into it too.
But really knowing, understanding, anticipating what the consumer really values, It's all about value, value identification and organizing around that. That was the third one more valid than ever. And then we spoke also about this new reality where we have to engage as a company with communities and stakeholders much more intimately. And we know that. We are a high tree catching a lot of wind.
We always had. But this is just not getting better or it's we have to engage and we have to talk about ourselves. We have to be still more transparent. And that is something I think we have done more increasingly the last years and to a certain extent recognized for Aetna. And that is heartwarming I must say.
But we see also the meaning of a company like ours to be really part of society and to drive some parts of the discussions in society not just living them. The 4th one was engaging digital. We normally as a company are a company that is sometimes just watching out a little bit making sure steps in the new dimensions. But sometimes waiting digital are going so fast we don't have that luxury. And as I said, we said as a company, we want to be a leading fast moving consumer goods company in the digital world with 2 dimensions to it.
There is this whole dimension of social media and how we engage there. And actually the fact that we have a digital acceleration team here that where we brought in talent from the markets from the Neste markets to really share and to learn this digital world. As you can imagine all young people, people with a different language engaging with the digital world, engaging with consumers all over the world in another way. And we have gone a long way in the 2 years that is in existence now. And we're rolling out these people go back to their markets and are engaging their markets in that dialogue in that conversation.
That's the first part. The second part of digital is e business. And we do have very important aspects already in businesses and e business, but I do believe we can engage more. More so because I truly believe e commerce and e business in general is going to be actually taking over in from the developed world into the developing world. As you can see the e commerce is actually a way of bypassing deficient infrastructures.
So we see their attraction coming and you see it already happening in quite a few big markets. I do believe there's an amazing upside for a company like ours to really engage there with the 3rd parties who are interested in having our own business to consumer business has also driven more efficiently and effectively. So embracing digital was the 5th one priority we want to embrace and that we have our agenda as a global organization and digital. And then the last one, the obvious one is to have the best people. And the best people has more meaning now because with the globalized world with a world where business models are not unilateral from the Western world.
You see new thinking coming in how new ways of coming about supply chains and all. We need diversity of talent. So it is to have good talent for absorbing growth, but it's also to have good talent to have all the insights that you need to be successful in this changing world. And I think we if you think we have more than 90 nationalities already in this building, for example, headquarter, we have more than 90 nationalities. You see our general management with all the nationalities and cultures that we have there I do believe we have an advantage there, but we have still to drive further.
These are the 6 priorities if you want that we want to focus on. Now I want to go back to 3 of them. We spoke about making choices. We spoke about if we want to we embrace that with these three priorities. These three priorities has consequences and induces to action.
And I have personally on my there's 3 that I mentioned that I really want to share with you and be more explicit that are high on my agenda list on my agenda. And the first one is strengthening our portfolio linked with portfolio management. You have heard that before. It's a tool or it's a way of going about analyzing and building transparency through this complexity of categories and markets. Basically, we have actually 1800 I think sales that we analyze on certain criteria be it the analyze on certain criteria be it the strategic fit, be it also the resource need and allocation you have behind that or in other words return on invested capital and also the capability that we have in these categories to win in other words to grow profitably.
These are the criteria based criteria that we use. Now we judge all these sales, all these categories and markets and all that and that but it creates consequences in the sense that if something doesn't work, well there's basically 2 ways to go. It is to fix it or to just get rid of it. And we have been a company that has to certain stand a little bit of luxury and I got enough feedback from your side to say we were a company that allowed quite a few of these underperformers to underperform for too long. Well, that's on my agenda to make sure that is not the case anymore because I do believe that if you allow that over a long time, you start to actually weaken the good businesses because they have to go overcompensate for the weak businesses and we're going to go after them.
That visibility that we now have creates short lists. And the short lists are there and now the action has to come. The timelines have to be wise, but action will come. So the portfolio management that we have been sharing with you over the last years that has given us because to implement that and has been embraced by the whole organization has created quite a few shortlist and we organize around that now with the right time frames, 1st on my desk. 2nd one is resource allocation.
At the end of the day, all what we do is getting results with the maximum efficiency of resource allocation. And one of the big resource allocation that we have used the last year is its CapEx capital expenditures. And I think that was the right thing to do. The last 3, 4 years, we have increased our capital expenditures quite intensively, both quite heavily at both levels that we normally have with the cruising levels as we call it. And that was the right thing to do.
Why? Because we saw acceleration of growth. We saw also acceleration of the emerging markets embracing new product concepts going from the classical volume cube to more sophisticated concept, you have to build the capacities and the capabilities in these markets. As you know, we are by definition a decentralized company and food is to be produced as close as possible to where the consumers are. So we have built these capabilities be it in capacities.
We have opened R and D centers because we felt also that the emerging markets have unexpected opportunities of driving and inspiring our whole R and D. We have built these capabilities too. In other words, we had during the last 3, 4 years quite an impressive acceleration of capital expenditures. We want now to leverage that investment to sweat the assets as we call it. And by that we for the future for next year for example, we want to cap capital expenditures which is always a healthy thing to do sometimes just cap it.
And it is amazing how creative people are to get their things done with limited resources. But I feel after 3, 4 years it's time not to sweat to leverage the investments we've done. A lot of capital, a lot of cash went into that and we're going to sweat them now. And we're capping, capping, I would say, the capital expenditures for next year back into the normal cruising speed of between 4% and 5%. That is basically more than 100 basis points less than what we had for example this year foreseen.
That's the second one. So resource allocation efficiency specifically capital expenditures discipline for next year's end. I hope in the years after. Right thing to have done investments in the last years. And then the third one is call it structural efficiency or call it managing coming from managing complexity to mastering complexity.
We are by definition, by strategic decision, we are a complex company. We have took we took decision. We have taken decision in the past to really be engaged in different categories, Chris, in different categories, be it milk, be it coffee, be it etcetera. That's a certain complexity. We are engaged worldwide over having operations almost in all every country of the world.
We have a fundamental belief that the best structure in food in our company is to be decentralized in decision making, create some intrinsically by strategic decision making a certain complexity in our landscape. Now that creates that decentralized that creates the other side, size. Being in different categories, being in all these markets creates size. And we have always worked to translate that size into scale and scale into competitive advantage. Just think about R and D for example.
How many platforms we can roll out on different categories in all these markets? These are where we leverage size into scale, scales into competitive advantage. Now we have defined different business models because we don't have one business model. And you see examples. We have local managed businesses that are linked up with the zones.
We have regional managed businesses that are not in every country, but managed by zone like for example Purina. We have Purina North America. We have Purina Europe. We have Purina AOA. We have global managed businesses like infant nutrition.
We saw HEICO and Louise. We have water global managed businesses. What has driven the decision making there was basically the generating demand. What is more driving that category? And in certain categories like infant formulas, it's clear that innovation, innovation.
These are worldwide initiatives and rollouts rather than for example soups or Nescafe although a worldwide brand strong worldwide brand, but we have 180 brands blends because coffee is so and taste and profiles so local. So we have these different bulldogs. Then we have the strategic business units and the center and the role of the center that we have defined and then the role of the Nestle presence through Nestle in the market where then all businesses are coming together in the one roof in spite of having different reporting lines. We have been driving over time true globe transparency. Major project 10, 15 years ago that started and has given has linked up that complexity through the transparency and the standardization of data and processes and has brought us an amazing amount of possibilities of driving also the other side NCE that is driving through our operations efficiencies and goes after the waste I was talking about.
That dimension is helping us. We're driving also NCE out of operations beyond operations so that we start building up a lean enterprise. And that comes to my point. Are we after rest having established all these dimensions have the global managed business, the regional managed business, globe, NCE, etcetera, are we on the top of our efficiency of a performance as a structure, as a company in decision making and the processes of decision making, the rollouts of innovation, are they fast enough in this more globalized world? There are new means that are not technically there available.
Are we still working in the most efficient way? I do believe an organization like ours that would be very pretentious and blind to say that we are on the top of our form. I think what we have done as it's like an athlete. When an athlete goes and as he is performing, he's quite fit, but he's performing well, he can go to the limits of his lungs. If he wants to go faster, he has to do something with the body.
I think we are on the capacity of our lungs. There's so much upside still with the body. And an assert this order. And it is my personal initiative also to challenge the structure not structurally, but in the way it flux the information flux as the decision making is made to reconfirm what I feel is good and to tweak and challenge what is not really working well. And that is something we're going to do as an executive board.
We're going to start thinking and processing and seeing and challenging how we are structured, what is working well and what is not, what can we do better. There is upside there. And the biggest upside for us to have a much more flexible or much more flexible, more agile, crisp organization, so that our decision making goes faster that our responsibility definition is cleaner and that our rollouts of good ideas and all those new products is faster that we have processes that we don't have millions of e mails happening around and read by people who should not read them. There's so much upside that we have short term meetings. There's very, very many small little things that can be much better by this organization.
I do believe that it's not I'm not speaking about restructuring here. I'm not speaking about we're going to take so many people out and that's not the idea. The idea is to absorb the growth that we are projecting for the future on the same structures with a more efficient working method and interrelationships between. I'm speaking about Marginal getting better over time, but I do believe there's quite an upside here that it's going to help us to be lighter in structure, lean enterprise and yet at the same time faster. So I have basically we have the road map.
We have 6 priorities. I share them with you in 2, 3 occasions already. But I have 3 things on my desk and that is definitely actions coming from portfolio management. The second one is CapEx discipline or CapEx capping discipline. We always had disciplined CapEx and but it is to cap it because I do feel we have done a major effort with shareholder money investing in our structures, in our capacities and all that.
No time to leverage that and spread our assets. Capital efficiency is definitely linked to that. And then the third one is structural efficiencies. It's from managing complexity to mastering it and there's some upside there too. These are the 3 things I wanted to share with you and they are very high on my agenda.
These are things we're going to work on in the next months, years and we are very much aware of the upside there that we're all going to enjoy I'm sure of. With that, I think I didn't want to make such a long introduction. But we open for questions now. So please.
Patrick Schwindeman, Zurich Antennale Bank. I have two questions. Firstly, a Dutch colleague was mentioning yesterday a slowdown in the emerging markets in quarter 3. I know Nestle already had a slowdown 1 year ago. But what are your expectations here for the emerging markets for Nestle?
And secondly, regarding your stake in L'Oreal, I know all the options are open for you. But let's assume you would sell the stake and would do an Asia share buyback. What would justify such a move? Thank you.
Well, first question slowdown of emerging markets that's something we said already a year ago. And these slowdowns are not all of a sudden you wake up in the morning and they all slow down. It is not that the emerging markets are all orchestrated to slow down the same time. So that reality we are so capital in the market that we have we're actually a very good barometer of what's happening in the world. So we were quite early to see these signs.
Now I in many markets, it's a slowdown that I would say is us to some extent healthy. I'm the first to say and I have shared with you when a China or another country grows 12% 13%, 14%, 15% several years in a row that overheats the engine. And there's some structural dimension that should play then. And you see the authorities there structuring the playing field a little bit in China that MIS over time is healthy. Now if you have a region like the Middle East and certain countries being in war that's not very healthy.
And that's part of our reality. I mean we have shared with you how an anchor factory in Syria that we had that was working until a few months ago that was blown apart and looted. It's not operational anymore. That was actually a factory that was also supplying the region. Well, we are rewiring now investing in certain other factories and other countries.
But before you get that you but that's the emerging markets. Then we said the developing markets where I hope to get some more colors back. That's these were the words we used in North America and Europe, but it takes a little bit longer. And North America is a little bit lukewarm and a little bit longer because it was structural. So no surprise that's reality.
What is important for a company that goes is to drive the right innovation, renovation agenda To winning in the marketplace is to grow faster than the market and with the agenda that you want to drive and not be driven by. And I think that is how we measure ourselves. So the emerging market is a little bit slower than before. Company, developed markets too. And we have really focused a lot and invest a lot in market and consumer spend behind our brands and innovation to maintain all parts of the world because at the end of the day the emerging markets are very, very important.
And in short term they're going to be 50% of the world economy, all right, but still only 50%. So you better don't limit your playing field on 50%. So we really engage overall. Our growth I would say also you see less pricing in that group we have. And that's good I would say, because you have less input costs.
You may remember also when input costs skyrocketed, you say, are you pricing to the highest level? We say, no, they're going to go down one day because we see underlying lines there and try to be right there. And we have quite a little bit of visibility of how these trends go. Then we have less pricing need because of input cost reduction or well then you have less pricing in your growth. That's normal.
I mean that's what we have. What for me is important is rig is taking up. And that is underlying really the strength of our growth. It's quality growth. It's balanced growth.
It's all over the world with weak points. But I must say the consistency and the spread of our growth is healthy. Emerging markets some are these are accelerating. We're putting right things in place to accelerate. Africa is still going on with its 40 plus countries and some are accelerating, others are a little bit slower.
But all in all, it's a continent that goes 5% to 7%. So Latin America is challenged a little bit. You see I don't have to give many examples, but Brazil, you see some of the inflation coming back devaluation. I lived in Latin America for a long time, so I know what I'm saying there. But it's far from what it was used to be.
So more stabilizing dimension in these countries that allows really then to in the long term to be a very interesting place to So that's how I read it. I mean, we were quite early in seeing it happening coming in and we are organizing and part of the capital expenditure discipline that we're speaking about is linked to that. We have our capacities now. We have to spread them and we're happy we did it in the right time. On the other question, L'Oreal, you just said all options are open and no more comments.
Hi. It's David Hayes from Nomura. Can you just talk about how you're going to balance the risk as you get the organization to focus on capping capital intensity, working capital, which you've talked about as well, that you're not suffocating the business in terms of seeking growth and that as things are getting more difficult to your previous answer, you're making it even more difficult for Nestle to hit the launch of the Nestle model? Thanks very much. Launch of the Nestle model?
Thanks very much.
No, because let me share with you the Nestle model as we all came to the model as we all came to name it. It's a dimension of consistency over time because the initial in the model because the model perceived profitable growth and capital efficiency is a first hour in business school. That's what company should do, top line, bottom line capital efficiency. Now the next level in the model is we've tried to have consistency. And the consistency is over years.
The consistency is not every quarter, every year specifically per se, but the line we want walk is 5% to 6% growth and the margin increase that we want to have is part of that. If you see also and the margin we want to have is not because we want just more margin. We do believe that the business model and the strategic direction we have is added value direction. Privilege now and being part of the decision making process in more explicit way not only on an aggregated way, but in a sell by sell way. And that is where portfolio management comes in.
Now so we don't privilege 1 or the other. We are NAND company again. And I do believe that when you stop growing, you're in trouble, because then you're losing part of the relative size you have. You don't grow manage your own agenda. Your innovation and renovation is not fruitful and frustration in your company.
The morale of the truce is very linked with growth too. Overdoing growth and growth will grow at the expense of the future, no way. We can grow tomorrow very nicely again, but on the back of the future. And we live in a society where too much has done already on the back of the future. We don't want to be there as a company.
We never be. We always have given that privilege a long term perspective on things. We have an intensity for the short term. We deliver, but always in perspective of time. The perspective of time over time over the years is that line of 5% to 6% growth margin increase linked with our strategy capital efficiency and I have shared some ideas on that.
So and that is linked again with investment. And we have increased our consumer facing investment because we feel we have more and more arguments built in our products, we have more and more innovation driving our growth, well then we have to communicate. So we this balanced way of going about things, this is not agonizing for small little things on the short term, but seeing the underlying trends of things. They're seeing the underlying strength of a company and its growth. They're seeing the underlying pipeline that is going to come.
And again, the pipeline is not every month the same impact of innovation. Sometimes you have more accelerates, sometimes has less. That all is actually the nicety of my job to see that all happening and orchestrating it in harmonious way. And Harmony is a strength for the future. Harmony is linked with not overdoing it now in the good part of the future.
We're not going to do that.
Hi. It's Warren Ackerman at SocGen.
I've got a couple
of financial questions for Wanling. The first one is, I mean, you've signaled that CapEx is coming down. You have more active portfolio
management and there's no transformational
deals out there. That all sounds quite positive from a invested capital point of view. So I was hoping you could share some of your findings on return on invested capital. Specifically, what invested capital currently is generating below WACC returns? And then secondly, where do you think the returns could get to on a 3 to 5 year view?
And what will be the drivers of that uplift hopefully in the return on invested capital?
And then the second one is just
on the restructuring charges. I noted that in 2012 the restructuring charges were only CHF 95,000,000 on a sales base of CHF 90,000,000,000 that's only 10 basis points of sales in restructuring. Some of your peers are spending 100 basis points on restructuring. So the question is, how should we view that negligible restructuring spend? And what you think is the right level of restructuring?
Does it kind of go back to the 40, 50 bps level? So that's my two questions. Thanks.
Yes. Thanks, Warren. Let me go back also to what David had said earlier about balancing the risk of suffocating. I want to reiterate what Paul said earlier. When we think about portfolio and managing our portfolio more actively, there's really there are really two sides to the coin.
It's not just walking away from businesses that are under performing, but also accelerating where we need to accelerate. So to David's question about will we be risking a suboptimal level of investment for future growth that is categorically not the case. And that will not be the case, because like I said, there are 2 sides of the coin. In terms of the review that we've done, we have the tool has been rolled out to 97% of our sales. And we obviously have clear visibility on how many cells are anywhere from value destroying to sort of like on the verge.
It's not a detail, Paul, that we're sharing broadly with the public. But clearly, like Paul said, it's not just an automatic assumption that if a cell or a category in a geography has not been doing well, it's not an automatic assumption that we're going to put it on the block, rather can we fix it? How long is it going to take? And if not, maybe this is just a business that we're not the best owner for and therefore we will walk away from it. In terms of the question timing perspective, depends on what from a timing perspective like we to the extent that we sell some businesses and we have to take some or we have to do something from a restructuring standpoint once the businesses go, so we have some retained costs that we have to deal with.
So it's not it's going to be I guess, our guidance is we will improve margin, which is our Nestle model from year on year. And so obviously, restructuring cost is a part of it, but we'll manage it so that we deliver against our commitment of improving our trading operating profit margin.
Well, it would be a strange target. Let's have 30 basis points restructuring cost. I mean but you're right there was a certain level that we have which is intrinsic to a business, but it doesn't have to be played every year. We have to do it in the right time the right there was a time that we had a much higher restructuring cost. You may remember 7, 8 years ago, we had a wave of restructuring because it comes always in blocks.
But linked with efficiency and resource allocation, restructuring is part of that too. What doesn't work you fix it.
Hi, Eileen Ku from Morgan Stanley. Two questions. 1, it's encouraging to hear you talk about more active portfolio management. I was wondering kind of scale are we talking about here? You've done your review.
What percentage of businesses have you looked at that look like they're underperforming or could be in the hands of other owners? And the second question is actually on local competition. I mean, I don't know if this is a fair assessment, but it feels like in Food particularly the competition from local players seems to be more sophisticated and more aggressive lately. I mean, would you say this
is a fair assessment?
Is this a threat for your pricing power long term? And what are the steps that you're taking to make sure you stay ahead? Thanks.
The active portfolio management you speak about. First of all, the whole portfolio management is not with one objective alone in the sense of let's see what we divest. It's part of it. But for me the most important thing is to have the visibility of where should we fix certain things that are sailing under the radar screen for too long without being part of the party. And that is what we are focusing on.
Divestitures we're going to have some. We're not going to give figures on this as you can imagine. But there are certain things that are not that we can't see all of work on our strategy and all that, but we cannot enjoy the business. We don't want to be we want to be in business not an agony. So if something doesn't really show it, well, we have to be sharp and say, okay, fine.
Let's put on the energy not in evading the question, but let's put the energy in getting into solution to the problem and that's it. So that's going to be the shortlist I'm just speaking about. There's a shortlist also of fixing. And the shortlist of fixing is slightly longer than getting rid of. We are business people.
We want to do business not getting rid of business. But there are certain things that we don't see we can fix. Now a very important comment on local competition. I'm the first to really acknowledge that in food is local. We always say that.
That's why we are decentralized as well. But that means also many local players. And our competition, the classical big ones and the classical names in the classical, we have to be aware and we are that so much competition is coming from new places. And not only local like we had, I was in I have mentioned that before, I was living in Latin America for a long time. We have many and we always had small local players and teasing here or being already in the market for a long time and having leadership.
What we see is that there's these players are developing very fast going international or are big in their own country and really sizable. And they're not opportunistic. Starting to invest in R and D. They're linked up with universities. They have very good quality and very good management.
So we see new dimensions of competition coming in that are very, very strong. And you have some countries that you're regional players, but you're multibillion already. So we have to be aware of that. And we should not be blinded by only the classical players and what they do only, they're part of it, but we should have an increasing openness to these new competitors. And I can tell you they are fantastic.
They are very strong. They have a capacity of attracting very good talent be it in management or in R and D and they do the right things. And that's again an advantage of having a company that is so decentralized in decision making because it is clear that the market had somebody who was leading over a presence in a market in a country is very close to that. And then the reporting back of what's happening, the monitoring that we can do to of these people is very direct. So but it is indeed the competitive landscape of our industry is changing and changing fast.
Pavel Osmanis from Liberum Capital. Look three questions. 1, I want to go back to the theme of emerging markets. But can you help us put it in context, okay, emerging markets are slowing down, but how bad is it really compared with 2,008, 2,009 or previous crises? And the reason I ask that, from my perspective, it's a lot less worse than it did in the past.
But I find that there's a reluctance or a reticent from a lot of consumer companies to take pricing in emerging markets in the middle of a crisis compared to other occasions. And I find that particularly came across in the Q2 conference call. And second quarter results just less pricing. I know you mentioned commodities,
but I can go back 2 or 3 years ago, I think in
the conference call, conference call, I don't remember if it
was Mr. Singh or Rody said something
like, you cannot underestimate how much price we've taken in Latin America and it was in the middle of a crisis. So I'm just trying to understand how bad is it really? And if it's not so bad, why this reluctance to take and Health Science? When you divested the Alcon business and I had and Health Science? When you divested the Alcon business and I had just started to cover the stock at that time, when you divested the Alcon ARCOM business was that because there was an opportunity to buy something or because strategically you decided we want to sell it and we have a good bid there?
If you can just do some history there just putting that in context. And I guess the last one is maybe one for Ms. Martelo. Is there a debt target? I mean, whether we make our own little projections in terms of cash flow, but is there a debt target in terms of our balance sheet efficiency that we should think of in terms of net debt to EBITDA or other metrics that you would use?
And related to that, when you think of dividends or buybacks, is there a preference? I mean, if your dividend, if it's going to be an extraordinary dividend or a big share buyback program a one off, is there any preference taking into account of course shareholders' tax interest? Thanks.
Thank you for your questions. The first one emerging markets and the slowing down how bad this is how deep is it how structural is it versus history and the past? And then the second question pricing. I think as they have been growing so fast in contrast with the developed market in crisis, in contrast with the developed market in crisis, the contrast was so huge and the dependence for growth of the world was so important that it hurts now that they're slowing down much more visibly. So it goes straight into your face.
And I do believe the growth in the emerging markets is much more stable than before if you compare with the past. So two considerations. First, the contrast is showing it as worse than it is because at the end of the day they're still growing. And they're still growing nicely. We were used to more and would have liked more.
But and there are some parts of that emerging markets that are going to reaccelerate to a certain extent. I hope not again to 15% and then slowing down again. I think growth in these markets are going to stabilize whenever we have stable political social environment. That's 1. 2nd, the stability of this growth of the growth in the emerging market is also linked with the fact that the emerging markets in my eyes are growing on their own terms.
And that's much different than in the past. In the past, the emerging markets were classified as developing by the developed world and basically it was the definition of Europe behind us. But their whole growth was dictated and conditioned by the developed world. That has changed. In the developing markets and emerging markets, governments are going about their own future.
They have a lot of confidence and trust in themselves. They're starting to build their own structures. You see more stability politically speaking. And that is really refreshing. You see how they embrace their own natural resources.
I wanted to go for added value. You see how they really start to bind themselves together. And that goes hand in hand with 2 phenomena. First of all, they really see the strength of going about economical development and how that is a stabilizing factor in their own countries over time. And secondly, it is also linked with the fact that the developed world has its own challenges.
So they don't say we depending on them. They take their own faith in their own hands. There's actually a third one also. When a small country says, I'm going to go about my future on my own terms, that's one thing. When China says that everybody listens.
That motivates the others to do it. So the stability of growth in my eyes and for the emerging markets is linked with the more intrinsic internal growth, the building of middle class in these countries, middle class which is always a stabilizing factor in countries in general. So I see definitely growth has softened after a huge acceleration that was contrasting even more and we depended more about that. So it hurts a little bit more when it slows down. But at the fact that there's still a very, very recommendable rate of growth and I do believe that's going to stay because it's more stable.
Reluctance to taking prices, I mean, why should we? We're not taking prices for prices. We are not price hunger. We are creating value for consumers. And when you have and we had to increase some pricing.
In the last years, you saw the spiking of many of our raw materials. You remember in 2007, actually there was a major acceleration of raw material prices. And everybody says, can you price up to compensate for it? Then we connected with you saying, well, this is a price. We see an underlying line going upwards, but not to that extent.
It came down again. And we saw some fluctuations, some more fluctuation bigger higher fluctuation in raw material prices. Now I see them coming back to the line we are tracing and there's less need for increase in prices. So we don't do that. Why should we?
We are creating value. We have to be competitive in prices. We have efficiency programs driving cost out. We have lower input costs. So that goes hand in hand.
And we are living in a competitive environment where that is relevant. So are we afraid to take prices? I am the last to say we should not take prices. When we need to take prices, we have to take prices because that is a substance of your business. And if you have devaluation and you have cost inflation, we have to price.
And actually you see that. In Latin America, our pricing is higher than the rest of the world. In certain countries even double digit. Why? Because you have an environment like that where you need to price because if not your substance is fading away dramatically.
We are not taking price decisions here in the center. We have people who are totally understanding the dynamics of pricing and the need for pricing in the market And they take the decision there based on different considerations, input cost, competitive environment, etcetera, etcetera. And that's how we work. And that's how then by aggregation we have then one figure. That is by aggregation.
If you go into the nitty gritty, you have lots of differentiation and emerging markets where there is need for it to be increased prices and not we don't. Then on the debt target, now L'Oreal again. It's not really about L'Oreal, right? It's a history about Alcon and Yes. The reason why we invested Alcon, H Business is another reality.
A shareholder that allow them in a business that need to become cool. A shareholder that allows them in a business that need to be cocooned and have capital and cash. That is what we gave them. And they have been growing and has been a success story and it has got value in the market. We cut out a point and we say can we it's unconcerned by staying with Nestle and where Nestle only can give some size and cash protection or and R and D was really driven by them and all that or are they better off by somebody who may have an interest and who can drive more value out of it because they are in that segment and they can bring R and D capabilities etcetera?
We got to a point where the crossing of the lines was really on value creation for Nestle the best point of crossing. That's why we sold off Alcon at that time. And I think this is clear and the value was there and you know what the value was. Each company has another dynamics and has to be judged on that dynamics and Calcon was that dynamics. I'm not going to comment again on L'Oreal because we have all options open as you have mentioned and I would limit my comments on that.
The debt target well a little bit Granthi.
I'll take that. It's Pablo who asked the question right. Pablo called me one lane. Don't call me Mrs. Martello.
I still antiquated. That doesn't make me happy. On the question of balance sheet and debt target, it's we closed the year last year at 20 net debt at 22.2 and we ended at the half year point at 18,200,000,000. We don't typically guide on net debt, but this is what I can tell you. We as a company are very comfortable at the AA rating.
And we also have guided that said this year, we do not anticipate any meaningful significant acquisition. And so we've always said bold on, bold on define as $300,000,000 to $400,000,000 ish. And here we're sitting on October 1, and we've only done one this year, which is a very small one, PAMLabs. And so, with 3 more months ago, we don't anticipate any so you can without formally guiding, you can do the math and probably likely close the year at closer to last year's level or slightly below. In terms of dividend, we've always said dividend versus share buyback.
Our dividend policy is that of a sustainable policy. We pay our dividends always in Swiss And in the last 50 years, the number in absolute terms has never gone down. And that is our commitment to our investors. And we don't look at it on a payout ratio. We look at it in an absolute basis.
And so share buyback, we've always said it's more opportunistic to the extent that we have cash excess cash build up. We will always look at that. We don't have a program as we speak today, but that's something that's not off the table and something that we will obviously consider if the opportunity comes up.
So we
spent a lot of time yesterday talking about sorry it's Stuart Reeve from BlackRock. You spent a lot of time talking yesterday about nutrition. And it's obvious that as a food company you have a very long duration of your brands and your product. And pharma companies have a much shorter duration of their product. They have to reinvent it much more quickly, more regularly.
Are you concerned about that within Neste? Are you increasing the product risk within the business as you go more towards the Nutrition and Neste Health Science Business?
Well, it is clear that Nestle Health Sciences has another dynamics than the classical food and beverage business. First of all, in the classical Food and Beverage Business, you do have different dynamics too. You think about well, Nespresso is a good example there. It took us 11, 12 years I think before we got black figures. That's a long time.
That's you have to be stubborn to get there but or convinced 1 of the 2. It is clear that the time lines of flavors in certain products is easier to manage and we have quite a lot of capabilities in that. And but the Dolce Gusto's for example is another thing that much shorter timeline already because of it. So we have different timelines already. We have Babiness for example that specific machine that for EMEA is a fantastic offering, a fantastic value.
It's going to take time. Why? Mindsets, capabilities, quality of service that you want to deliver, so you don't overdo it. So then you go to Nifty Health Science and the timelines are much bigger. And there are you know that.
The lower the time line, the higher the risk. That's why we also said we have to pick our balance. You just don't jump in that ocean there because we have so we had already 3. We have already 2 building business. We have already 3 platforms that we are quite close to that we know a few things more.
We have defined 3 others Brain Health and you have seen them. It is clear that these timelines are much longer. But the size of the price is huge. So and the risk is in other words slightly higher. That's why also a company like ours has to go for more margin too because it's intrinsically linked with the higher risk that you're exposed to.
Now this time line per se, we want to have a short term dimension to it, 2,000,000,000 business already going well and which is relatively close still to fast moving consumers, which we have the boost for example in the United States is and it is Nestle Health Science, yet at the same time the dynamics are still quite close to what we know and know to manage it. We brought in to accelerate understanding, we brought in some capabilities and that's Prometheus or PAMLAP is to accelerate our knowledge and understanding there in that new area. We are working more with 3rd parties also in the science base building up because this is so huge and fast and so deep. So in other words, we are combining now the size of the price. We are talking about health care and how actually the society of today is going about health care by going for sick care in corrective therapeutic dimensions.
We know that food and actually the Chinese they call it best medicine as food that food can induce health dramatically. If you just would understand more how nutrients interact with you, I don't want to tell the whole story that surely Luis has shared with you. But that understanding, that conviction is what drives us to do that investment. Now if somebody can do this, I think a company like ours should be there. Why?
Exactly for what you say, there's high risk. There's more upfront payment to be done or investment to be done. Who can do that? Well, if we have a uniqueness of being able to do that and not many would like to do this, you build competitive advantages. So you see the opportunities I'm convinced of it.
You just have to engineer 2 words the right solutions and all that. And there's a time line and a risk. So not many are going to organize this. Well, then a company like ours should do that because the opportunity is actually this whole Nestle Health Science Institute, the setting up of the structure that Luisa has been doing and all that comes from the same P and L. We are actually delivering all that upside investment because we are driving very profitable growth on all the rest.
And we don't say, well, we're going to construct and build the future. Give us a little bit of a break. I don't feel they will be fair. We have to be able to leverage where we are saving energy. We have to be able to do both wisely.
And that's how and actually that goes back to a fundamental conviction I have. A company like ours should be able to do innovation permanently and call it the rolling innovation cycle. We are doing this because somebody else did something 10 years ago, 5 years ago in innovation paying or investing in something that gives now the cash so that we can do the same for the next generation. That is what we're doing. Because if not, you build anemia into your making which is Onsites has a little bit of higher risk and longer time frames and more investment, but we have to be able to do it.
The upside is just too inviting.
John?
Yeah. Hi. John Cox with Kepler Cheuvreux. I'm just wondering on the North American market. Paul, I know you were a sort of regional head there.
Just it looks a lot more challenging and maybe hasn't come back as much as people had anticipated. And I'm just wondering has there been any sort of structural change you think in the North American market? And then on top of that what about your own business and how reinvigorate that business somewhat?
You're totally right. It isn't challenging. It's slightly more challenging than we thought also because of the external environment that is rebalancing slower than we thought. We always said that America has the characteristic of going to crisis faster, but bouncing back faster, while the wind in fast, we're not bouncing back as fast, still faster than Europe, but still less than we thought. So in other words, it doesn't come back as fast as we thought also because of some of the problems of our making maybe.
First of all, you have to differentiate in North America. You have fantastic businesses there like Purina. Waters has done well, although challenged also because of pricing in the last quarters. We have good performing businesses coffee for example. Beverages in general is going very well.
You have coffee made is going very, very well. Strong growth of the whole category that is induced by the innovation that Coffee Makers bring. And we are building more and more strong even market shares in spite of many other players trying to get a bit of it. So we have many underlying things. Now we have actually also in frozen.
If you think about Stouffer, Stouffer is doing well. Now Lean Cuisine is suffering. And Lean Cuisine, these are business categories that changing or inducing new innovation that drives the business is a little bit slow always. But for example, again, Chef America with Hot Pockets is doing well, although that was something that we had to reengineer a few years ago. So we have many underlying things that's going well.
Others that I feel we have to inspire or restructure or not restructure, but having better innovation. And certain parts of the business in the United States had a little bit of a weakness, I would say, of what I just mentioned, this rolling innovation. And when you go for the short term in certain categories to try to save the day, you build an anemia in certain categories and that is something we are now reverting. With some upfront investment, we have restructured already quite a part of the business also structurally to free up resources to put behind the brands to be able to finance innovation, because we had quite a lot of innovation that was not really supported in this to the in the right way and long enough with consumer facing marketing spend. So that is we have a change of leadership.
The change of leadership is on new angles that are in my eyes is going to drive better value in North America. So I'm very, very positive for North America for Nestle and for North America in general for the years to come.
Jeremy? Jeremy Chialko, Redburn here. Can you talk a little bit more about the structural efficiency improvements that you spoke about earlier? So and it's obviously something which all companies aspire to do faster decision making, more flexible structures, etcetera, etcetera. So can you perhaps talk about what's different about this time that you're looking at it?
Are there any examples of some specific actions that you have taken so far? And I guess as a result of this, do you think that you can achieve a sustainable year on year reductions in your overhead costs as a percentage of sales? Thanks.
Yes. It's always difficult to be very specific when you speak structure and then you see the whole structure. What are we going to do there etcetera? First of all, what we're going to do we have organizational principles that we have defined a few years ago like what is the market head's role? Our decentralization process has a first chance.
What is the role of a market head? And the market head is local managed business. Is the role of a regional market head? Who is managing the region? What is the role of a global managed business?
And how is that global managed business intertwined or linked up with the local dimensions? For example, HR issues or regulatory issues. How we have defined all these things a few years ago. And we have defined the role of the center and the strategic business units. What is the authority of a global business strategy?
When we have something like an Escoffier brand or a brand essence as we use to call it. How strong is that authority? If we have a strategic option that has been discussed in the general management, how strong is that imposing into the markets? How is the decision making process? How is the rollout of new innovation?
How is the link between R and D and strategic thinking the strategic business units and the markets? How is that triangle going? And the zones. All these things have been defined at the time and has been actually never something like, oops, we invent something new. It is evolutionary always.
We always tune these things and adjust and adapt. We have defined how we are interlinked and Globe has been a tremendous enabler to link us up in a much more transparent way and faster way. All these things have we have introduced NCE. And NCE and we have mentioned that is very strong in operations in the physical dimensions of our value chain. We are driving and rolling it out in the softer parts of our organization like HR, like finance, like what does it mean?
How fast is it going? We know it's much harder to drive an NCE discipline through the softer part of the organization, but yet we have to do it. And these are the domains. How are we linked up with the fact that we have millions of e mails a day to be read by people? I feel this is totally, totally necessary.
How about not having an e mail dimension in our company and having platforms of communication like the new tools allow? Some companies have decided no e mails anymore. How about the fact of having so much travel and seminars that we have that are normally part of our landscape? We have for example, we have in this center, we have 120, 130 times people coming from the markets all over the world here for training. That's good investment.
And we're going there. The general management goes there to enter that. That's the leadership 50 other meetings here sitting full of people coming that's flying that's around and do we need that? Do we need that same these are the things we're talking about You see? And do we need I'm fighting for 1 pagers.
It's approved that I have no authority in this company because you don't get there. Many are doing it, but still too many long memos long things. We have too many no sayers in an organization like ours. It's easier say no. But who is responsible?
Who takes all these dimensions if you think about it, I don't say we're going to reschedule and rebuild the whole building and re but they're just going to challenge the fluxes we have, the fluxes of information, the fluxes of how we decide. What we have global business strategies. That's NISB industry world and in the world, who through knowledge understanding of all the markets and the dynamics of that category in the world is actually with the markets is defining a global business strategy. We call it GBS. That's a GBS for, for example, Nescafe.
That is saying Nestle, where are we? What do we want to do in the next so many years? And with the nuances of different dynamics of different markets and all that, that's a GPS. Then you have some conclusions. We decide on that.
That's general management is involved, say, okay. What is the follow-up on decisions that are inherent to that approval? Is that is the discipline there? How is that translated into the market business strategies? Every year a market comes and says, in the midterm, I think Nestle should do A, B, C and D in this market and put the resource more here and do that priorities.
Is there a link between that matrix that is efficient, fast and disciplined enough? And I know that we have been working on this and I know there's lots of efficiency already. I see upside. What is the authority of a good idea in this company? Good example, Deutsche Gusto used and abused already as an example, but let me allow me to use it again.
Deutsche Gusto is a concept $1,000,000,000 business now. It has rolled out over whole Europe. It's in 4, 5 years we have the network country in Europe basically. Well, that's the authority of a good idea. How is that going?
And we have that example. We have some more examples, but I would like to have more. And although we are very decentralized in decision making, it should be consumer relevant decision making and consumer relevant differentiation in the market, not ego defined differentiation. And you know we are a company and we are people and we have ego hubs. We have to see and analyze that a little bit more.
And I do believe that in the globalized world with all the differentiation need because food is local, global ideas should walk faster and broader. And that's an upside we have. That's where then our size starts to be translated in scale again. That's why that's when we're going to have R and D really motivated to do things because what comes out of it is rolled out broader and faster. We're going to have competitive advantage because if we launch on a new concept in one market and it takes us 5 years to get to the other market, competition is before us.
So that is what we say about structural efficiencies, decision making, rollouts, fluxes of information, paper, meetings, travel all these things. And maybe we may say that that structure that we defined 5 years, 6 years ago has some tweaks to be pedant on it because it doesn't work really. That list it doesn't work or it's doubled. That's what we want to do. How are we going to do that?
We're not going to bring in a whole bunch of very smart people. I'm going to put somebody on this who has a good mind, who knows this company in and out and he's going to drive this with me. I'm responsible for this. He's going to help me to be responsible together with the executive board, together with them. So in other words, it's my job to do together with the executive board and they're going to have somebody who helps to drive that project to really go and ask the right questions.
And he's going to do that together with the structures we have. If he needs some transparency, he goes to one lane and he's going to have the resources there to get that transparency and we have built it in. So that's the way we're going to do it. So it's going to be something that is going to I'm sure of creep in. It's going to go hand in hand with NCE beyond Operations 2.
Because at the end of the day Neste Continuous Excellence is going to give us some discipline and tool work to drive then all what we see and insight that we get there to drive that through the organization and in a more organized way. What is the upside of it? I think it is I'm the 1st to say whatever organization, you can always leverage it up by quite a percentage. I think we can grow quite over the next years, we should be able to grow with the same structure over the next years. How much is that?
I don't know. But it's 30%, 10% more efficiency out of this building. If you short the meetings by half, it's 50% or it's 100%. But think about it. I want to go very to the nitty gritty now, but think about meetings because that's how you have to show how efficiency is all over the place.
It's all potentially. And we have meetings where we have 10, 15, 20 people. We have a tendency of many people. Everybody involved is happy go lucky. If you think around the table half of the people should not be there.
If somebody who is leading that meeting saying half of the people sitting here should not be here. No, we don't. We are a very sociable, likable company. And sometimes people are sitting there because the person who is relevant to the topic of the meeting, well, he's the boss of that person. And on the other side, you have somebody on his level.
You know how people are. And the meeting starts 10 minutes late, 10, 15 minutes multiplied by 10. It's quite a lot of time. And if somebody really leading a meeting saying the purpose of this meeting is A B C and whatever is discussed that is fading away from it not allowed. Do we do that?
In other words, if you think about it, half people out, half the time to do the meeting is already the 25% of the time. You understand? So you think about it. The upside in an organization with the complexity we have is tremendous. And I know a social organization and as I cannot work with that acuteness of 25% only.
People are people sociable. They talk about football or something else for a few minutes. But still I do believe there's a high upside. I still read too much paper. I still read too long e mails and you know what I mean.
You mentioned that one of your areas of focus is to be more intimately involved with the consumer and stakeholders. And in some categories such as baby food, you're restricted In some other areas, say, adding micronutrients into your PPP foods, it might distract from the brand messaging engage with the consumer and make sure that they are valuing. Engage with the consumer and make sure that they are valuing everything that you're putting into the business the way you would hope they
would? Let's just make a distinction. First of all, when I say value what the consumer values and that's consumer. And in our role, maybe you see consumer engagement as one of the operational pillars and that's why digital and social media is part of that too. That's talking about our products, talking about our company, how we go about business because the consumer is not only asking benefits of the product, who is behind it.
That's the engagement, deeper engagement with consumer. It is going from unilateral communication to conversation, digital comes in there, the consumer lines, telephone lines all that is there. That's consumer. But I've said this, we as a company as one of priorities is to engage deeper with communities and stakeholders, which is the other part, which is being part being a citizen in the society. And you know that more and more is the society is more and specifically in certain parts of the developed world and some parts in the developing world, but specifically developed world many, many stakeholders are questioning and challenging on many areas, many like sustainability, what you do about certain ingredients you use or the supply chain and cocoa and the farming of cocoa?
Or is it with the infant formulas? Or is it and we as a company, we have to accept our dialogue much more proactively. And we had many, many good stories to tell at the time. We didn't engage though because we are a little bit like a company that I always show that we have so much reality and only talk like this. Yes, some other companies they have so much reality and talk like that.
We're never going to talk more than reality, but we should talk slightly more than we are doing, because we have so many things to connect with, to talk about. And there's so much effort being developed in many areas that are of interest to society. They should know about that because they're asking it. They're asking the questions. And we said how do we do that?
And we said at the end of the day all what we do is so intimately linked with what we have been doing ever since. And we are completely convinced that a company can only be successful when it connects positively society. We call it creating shared value, which is the economical activity of every company of every economical element in society should create value for society too. And you think about mail districts, you think about putting a factory in a god forgotten place and having hygiene, safety rules, education, it radiates added value for society. Why?
Because we are a company that thinks long term, long term linked with respect. And so when we engage in a society, we don't hit and run. We commit. We are part of that society. We are locally involved and we stay there for the long term.
Hence, many times I go now in countries and 100 years of Nestle, NA, country B is country C. That is how we go about it. That is what I meant by intimately connecting with the communities and other stakeholders and engage in discussion. And we were a little bit reluctant to do that because we felt only criticism coming. And it is clear that when you meet many stakeholders they see society from a international angle, it's always harder to engage because we are living more at least in the actual angle, it's always harder to engage because we are living more a 360 world as a company and have engagement with the customers with people who are 50 degrees only.
But that's how it goes. I mean, we have been doing that much more intensively. We have been the creative share value concept is something that we have been putting out there more explicitly. We have been documenting that. We have had forums that we share with society be it academic, be it societal, be it NGOs, be it the local authorities just to show and to communicate how we go about our role in society more proactively.
And that goes hand in hand with consumers because at the end of the day consumer is asking, well, what is the company? So and we enforce that from both sides. And that's why we also shared with you a little bit sustainability, because sustainability you see social responsibility and creating shared value is not a product that we want to sell. And sometimes the society pushes you in a corner of that's like a product you sell. It's like something you do on top of what you do.
And that's not true. That's not how we see these things like environment, like local communities. It's not after 7. That should be intrinsically linked with our activities. And that's why you saw also the sustainability efforts.
It's linked with how we operate, how we are, how we define. It's sustainable by design. It's sustainable by conviction. It's sustainable by investment. So and it should be linked to the whole value chain.
And we don't want to have just a showcase stuff. It should be everywhere in our organization. One last question.
Hi. It's David Hayes from Nomura again. Over the last couple of days, we've kind of picked up again that you seem to have this competitive advantage from vertical integration and partnerships with suppliers. But would you say it's true that that's an advantage during inflationary periods of time in terms of raw materials, which you talked about you've seen in the last few years? And does it become a disadvantage in terms of seeing the offset when you see a deflationary period like seeing more now?
Thanks.
Well, what is your question? Is it a statement or a question? No, no. It's a question.
So the question being, do you feel the vertical integration that you've got for these partnerships is an advantage during inflationary periods you have a competitive advantage, which you've enjoyed effectively. And that is less of an advantage because you don't get the relief on the deflationary side. And I guess to extend that, do you see that as an advantage competitively on the longer term because you see on the longer term inflationary pressures for raw material costs? Thanks.
I'm sorry. Your question is being integrated means we are only more part of the value chain?
Exactly. You're vertically integrated. So it feels like you are more vertically integrated with suppliers with the sustainability we've looked at and the other comments we've had through the last couple of days. Is that a competitive advantage, significant competitive advantage? And has it been so more the last 3 years in inflationary times?
Is it less so now?
We are indeed very much integrated in true relationships, but we don't own a cow. And if we own a cow, it's more for experimental things to see how a mill district works how that is now and I can We don't have coffee trees giving us coffee, but we are very much integrated. Even more so that we say the coffee trees quality is going down. There is nothing care of to the same to the extent that we should because of prices were down many years ago and etcetera. So we do have oversight not oversight, insight of the whole value chain.
And see then also what we have a little bit of an insight in the cost structures and the evolutions of prices. We are engaged yes indeed with 700,000 farmers directly and many in the mill districts, but also in other areas. And that gives you insight. You have lots of antennas. We have 1200, I think, acronyms on our payroll working with these farmers and working with others.
We have relationships with huge companies that do an important job on the upstream of agricultural materials and working in partnership also in R and D and development with these people. Yet at the same time downstream, we have customers and working more intimately with them. We go to Momopostar. So you say, but you speak about more upstream. Do you have a cost advantage having that?
Well, inside is a cost advantage. Inside not ownership per se. And it's the inside and the scale of that inside and the globalness of that insight that we want to leverage. That's how we see lines of cost increases over time, how we manage around this, how we can then hedge meaningfully and operationally that service our operation. Why?
Because it creates stability of pricing and costing, because you cannot handle a business like Nestle if you allow all the volatility of some raw materials just being played in every market. We do that more centrally. All these things are advantages. So I would say it's inside advantage definitely. And it anticipates you manage more you induce more stability in the management of your reality through that insight definitely.
And also it secures with the size we have it secures also raw materials directly or tangibly. We have like we have been communicating distributing small plantlets of good coffee trees that have higher yields and less need for water and more disease resistant. Well, that's a direct impact in having enough supply. And again, it is totally, I would say, socially responsible because at the end of the day, you give something for your own interest again. At the same time you create value for society because you create better quality, better yields on the same square mile.
So these are the things that helps us. It's clear that these relationships are in many instances not even binding. But we have seen over and over again and I speak from firsthand that many relationships are not only on financial terms. They are really linked on being part of a society or a community for the longer term and being trustworthy. So and trust at the end of the day is the most precious thing we have and that's what we care for.
And that has been to suppliers, customers, consumers, society and global. Well, I think one more question or no? No, no, no. He says no, no. So okay.
Thank you. Thank you very much for good questions. Thank you.
Thank you.
And I just 2 words more. I only can stress, we have organized this program around nutrition and nutrition and health and wellness and what it means actually. I can only stress the value potential of that agenda is tremendous. And that's why we have organized these 2 days with you here a little bit around this. And I can only stress also remember the 3 things I have on my desk.
I'm really going to go after them. And I do see also quite a lot of potential there too. So looking forward to be communicating that to you too later on. So thank you very much for your presence too and interest in our company. Please, we're getting the first part.